Wednesday, August 31, 2016

M&A documentation in Belgium


Documentation

Preliminary agreements

What preliminary agreements are commonly drafted?

Letters of intent

A letter of intent is used in the majority of transactions. The level of commitment of the parties to deal completion may differ. However, parties should take into account the fact that an agreement has in principle binding force as soon as the parties agree on:

  • the price (or the calculation of the price); and
  • the object of the transaction.
Parties may nevertheless deviate from this rule but should include this explicitly in the letter of intent.
Typically, a letter of intent contains a number of binding clauses (eg, clauses on exclusivity and confidentiality), as well as non-binding clauses and assumptions or conditions that should be fulfilled to allow for the deal to go through.

Exclusivity agreements

Often the potential buyer will request exclusivity for one to three months. This clause is typically inserted into the letter of intent, but parties may also enter into separate agreements on exclusivity. In principle, a transfer in breach of such agreement may not be unwound, but the seller may be held liable for damages. A court will unwind the transaction only if it has been established that the third-party acquirer was aware of the exclusivity agreement and the fact that the transfer would be a breach of such agreement. In that case, the third-party acquirer may also be held liable for damages.

Non-disclosure agreements

Depending on the sensitivity of the transaction, the parties may also enter into a non-disclosure or similar confidentiality agreement. This is sometimes part of a letter of intent, but parties often execute a non-disclosure agreement at an earlier stage of the negotiations.

Most agreements typically provide for standard exceptions such as disclosure required by law or with the prior approval of the other party.
A party may claim damages if the other party breaches the confidentiality undertaking. As it may be difficult to prove damages resulting from such breach, contractual lump sum indemnities are often provided. However, due to the difficulties related to establishing a breach of the undertaking, enforcement is rare.

Principal documentation

What documents are required?

In addition to any preliminary agreements, the main acquisition document is the share or asset transfer agreement. Depending on the deal structure, additional documents (eg, service level agreements, shareholders’ agreements or supply agreements) may also be necessary. 

Which side normally prepares the first drafts?

It is market practice for sellers to prepare a first draft of the transaction documentation. However, depending on the nature of the transaction and understanding between the parties, alternative arrangements may be made.

What are the substantive clauses that comprise an acquisition agreement?

A typical acquisition agreement includes:

  • the object of the transaction:
    • in case of a share deal, in principle this is straightforward since it concerns only the transferred shares and all related rights; and
    • in case of an asset deal, this is somewhat more complex as parties must define in detail which assets and liabilities are transferred and the ones that should be excluded from the scope of the transaction;
  • the purchase price, including mechanisms to calculate the purchase price, deferred payments or earn-outs and escrow provisions;
  • conditions precedent for closing (in case of separate signing and closing);
  • buyer and seller covenants, including pre-closing covenants for the interim period between signing and closing and post-closing covenants;
  • undertakings
  • representations and warranties;
  • specific indemnities and indemnification mechanisms for breaches of covenants and representations and warranties; and
  • general (often standard) provisions relating to notices, confidentiality, termination, assignment, costs, governing law and dispute resolution. 
What provisions are made for deal protection?

A no-shop clause or a break fee may be inserted in preliminary agreements to safeguard the deal. However, particularly in the case of public takeover bids, it may be delicate to include these clauses as it could be argued that they are not in the target’s interest. In any case, it is common to insert a non-compete clause prohibiting the seller from entering into competing activities after closing, as well as a non-solicitation provision that prohibits the seller from recruiting personnel or key persons from the target after closing. The average term of these clauses is around three years.


Closing documentation

What documents are normally executed at signing and closing?

In the case of a separate signing and closing, the share purchase agreement and board documents are typically signed at signing, while the closing memorandum, share register, minutes and ancillary agreements are typically signed at closing.

When the parties execute a closing memorandum, they will confirm:
  • the satisfaction of the conditions precedent;
  • respect of the relevant covenants between signing and closing;
  • the proper implementation of the closing actions or formalities; and
  • the transfer of the title and risk to the shares or assets.
Are there formalities for the execution of documents by foreign companies?

Under Belgian law, there are no specific formalities for the execution of documents by foreign companies. However, in some cases parties may request a copy of the articles of association or the bylaws of the foreign company, as well as an extract from the relevant commercial or trade register confirming the signatories’ authority. In addition, legalisation or an apostille might be required for the use of foreign documents in Belgium. Further, parties sometimes require a legal opinion confirming the incorporation and existence of the foreign company as well as the capacity of the signatories of the transaction documentation.

Are digital signatures binding and enforceable?

To the extent that certain conditions are fulfilled, digital signatures may offer valid proof of the execution of an agreement.

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